Unilever 2004 Annual Report Download - page 159

156 Unilever Annual Report and Accounts 2004
The differences between UK GAAP as applied by Unilever and US GAAP on accounting for goodwill and intangible assets are set out in the
tables and footnotes below.
Impact of goodwill and intangible asset accounting differences on net profit (before tax):
€ million € million € million
2004 2003 2002
Cessation of goodwill amortisation(a) 813 852 932
Cessation of intangible assets amortisation(a) 225 257 277
Pre-1998 goodwill and intangible assets(b) (11) 48 127
Impairment of goodwill(c) (359) ––
Cessation of goodwill amortisation on joint ventures and associates(a) 711 22
Total adjustment to net profit 675 1 168 1 358
Impact of goodwill and intangible assets differences on capital and reserves:
As at As at
31 December 31 December
2004 2003
Cessation of goodwill amortisation(a) 1 996 1 579
Cessation of intangible assets amortisation(a) 627 472
Pre-1998 goodwill and intangible assets(b) 3 617 3 797
Differences in calculation of goodwill on acquisition(d) (79) (75)
Adjustments related to deferred tax on prior year acquisitions(e) 1 120 –
Cessation of goodwill amortisation on joint ventures and associates(a) 28 23
Total adjustment to capital and reserves 7 309 5 796
(a) Under US GAAP prior to 1 January 2002, purchased goodwill and identifiable intangible assets were capitalised and amortised over their
useful lives. From 1 January 2002, under SFAS 142, the amortisation of goodwill and identifiable intangible assets that have indefinite
useful lives ceased. Intangible assets that have finite useful lives continue to be amortised over their useful lives.
(b) Under UK GAAP, goodwill and intangible assets purchased prior to 1 January 1998 were written off in the year of acquisition as a
movement in profits retained. On disposal of a business acquired prior to 1 January 1998, purchased goodwill written off on acquisition is
reinstated in arriving at the profit or loss on disposal. Under US GAAP, such goodwill and intangible assets were capitalised and, prior to
1 January 2002, were amortised over their useful lives. These different accounting treatments give rise to differences between net profit
calculated under UK GAAP and net profit calculated under US GAAP, both in respect of amortisation recorded for US GAAP purposes prior
to 1 January 2002, and in respect of the calculation of profit and loss on disposal of a business. Similar differences arise in the calculation
of capital and reserves under UK and US GAAP.
(c) The detailed rules for measuring impairment differ between UK and US GAAP, resulting in differing figures for impairment recognised as
calculated under UK and US GAAP.
(d) The detailed rules for determining the fair value of assets and liabilities acquired as part of the acquisition of a business differ between UK
and US GAAP. These differences give rise to differing figures for goodwill arising on acquisition as calculated under UK and US GAAP.
(e) The 2004 US GAAP reconciliation includes an adjustment to goodwill of €1 120 million and deferred taxes to record a deferred tax liability
of €1 002 million relating to intangible assets recognised as part of the Bestfoods acquisition. The impact of this adjustment on prior years
is not significant and therefore the adjustment has been included in the current year.
During 2004 we reviewed the balances relating to the global Slim•Fast business in light of the significant decline in the weight management
category in North America during the second half of the year. Over the last few years, consumer tastes in this category have changed
frequently, featuring low-calorie, low-carbohydrate, low-salt, low-sugar and other products. The business declined in 2004 but maintained
leadership of the category by refreshing its product range and offering a broader diet plan. The impairment review determined the value in use
using a discounted cash flow methodology for a period of 10 years. The projections covered 10 years as management considers that this period
more fairly reflects the long-term value in this highly dynamic category. The discount rate used was based on a pre-tax weighted average cost
of capital and was 11%. As a result of the impairment review, the carrying value of the business was determined to be in excess of the value in
use, thereby requiring an impairment loss to be measured by a comparison of the carrying value of goodwill to its implied fair value. This
evaluation yielded a goodwill impairment charge of €916 million. The impairment charge is €325 million higher than that recognised under UK
GAAP because goodwill amortisation has not been charged on the underlying assets against which the business valuation is compared and
because of a difference in the methodology of measuring the goodwill impairment charge under US GAAP. This has been reflected wholly
within the Beverages category.
Additional information for US investors (continued)
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